Friday, June 13, 2008

Scapegoating China

Since the "blame China for our trade deficit" game is so popular, allow me to summarize the situation: "It's your fault U.S. corporations sent all their manufacturing to China in order to reap hundreds of billions of dollars in profit."

Uh, that didn't come out right. Let me try again. "It's your fault U.S. corporations made hundreds of billions of dollars in profit selling low-cost goods made in China to willing U.S. consumers."

Isn't this a case of "Please stop me before I go shopping again"? Did some Chinese representative hold a gun to Mr. Consumer's head and make him buy that huge $4,000 BBQ contraption that's doomed to be a rust-bucket piece of trash in a year or two? No.

And isn't it also a case of "Please stop me from reaping gargantuan profits?" Did Chinese companies or the Chinese government buy U.S. companies and then ship their manufacturing to China? No. U.S. companies have done so for their own reasons: sustained, massive profits. U.S. companies have never piled up such stupendous profits, and the reason is clear, thanks to this data from the U.S. Department of Politically Explosive Buried Statistics (USDPEBS):

Our analysis found that product costs dropped by an average of 50% as a result of moving the manufacturing to China, while the quality of products dropped 65%. Retail prices dropped on average 5%, while corporate profits rose to historic records.

OK, I made up the department and the statistics, but you get the idea.

If you just read the headlines and the political grandstanding, you'd think the trade deficit with China was the overwhelming "cause" of the overall trade deficit. Oops, it's only 31%--roughly equivalent to the deficit the U.S. runs with Canada, Mexico and Japan combined. So where are the demands for action against these other trading partners with whom we run massive, sustained trade deficits?

Gee, could all this heat and light be political in nature rather than fact-based? Do ya reckon?

It sure looks like the "blame" for a stupendous trade deficit arises from a number of sources, not just China:

And here's a look at the deficit broken down by autos/parts, petroleum and "other goods":

(Note that the U.S. runs a healthy $119 billion trade surplus in "services," so the total combined deficit for goods and services was $700 billion in 2007.)

Why aren't the politicos and pundits foaming at the mouth about the biggest cause of the trade deficit, imported oil? Where are the demands for energy independence via massive conservation and alternative energy development?

And how about that massive deficit in autos? Could that be Japan's "fault"? Back in the 1980s, the political heat was all aimed at Japan for its mercantilist policies and huge trade imbalance with the U.S. But when the Japanese economy fell off a cliff in 1990-91 (their stock and real estate bubbles popped), then suddenly the strident calls for "punishment" and "action" disappeared.

Now you never hear a peep about the trade deficit we run with Japan--or the ones we run with our North American neighbors, either, even though the three together are about the same size as the deficit with China.

You get the point. The trade deficit with China is a politically expedient whipping-boy. Look at these charts again and identify the "villain" in the drama. Why did U.S. wages/labor compensation plummet even as U.S. corporate profits surge to new sustained records? Was that China's fault? No.

Meanwhile, China is suffering immense environmental damage as a result of corporations from the West and Asia moving manufacturing to China. And where did the runaway inflation in China come from? Could it be partly as a result of the huge amount of dollars sloshing around their financial system?

The U.S. didn't coerce China into joining the world trade system, and China did not coerce U.S. companies to move their manufacturing to China. They could have kept more manufacturing in the U.S., or moved it to Mexico, Vietnam, Thailand, Brazil or a dozen other locales. But they moved it to China with a vengence because they calculated that was the fastest, easiest route to stupendous profits.

Scapegoating China for enabling U.S. corporations to reap hundreds of billions in profits is nonsense, and perhaps it's time we admit the responsibility for the deficit is ours, along with the profits and the consumerist addiction to inexpensive shoddy goods.

You don't want shoddy goods from China? Then stop buying them. The companies profiting from the trade will get the message as soon as their gargantuan profits drop.

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